Morals in Multi-Unit Markets

Research Seminars

The paper presented in this ZEW Research Seminar examines how the erosion of morals in markets depends on the marketpower of individual traders. Previously studied single-unit markets provide market power to individual traders by limiting the roles of two forces: (i) the replacement logic, whereby immoral trading is justified by the belief that others would trade otherwise; (ii) market selection, by which the least moral trader determines quantities. In an experiment, they compare single-unit to (more common) multi-unit markets which may activate these forces. The authors find that, in contrast to single-unit markets, multi-unit markets show full erosion of morals. Especially the replacement logic drives this finding. In addition, they find that (i) market experience leads to biased social learning, whereby subjects believe that others are less moral than they actually are; (ii) erosion of morals persists partially after multi-unit markets; (iii) changes in social norms are not driving these results.